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Will Gilead (GILD) Disappoint This Earnings Season?

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Gilead Sciences, Inc. (GILD - Free Report) is set to report fourth quarter 2013 results on Feb 4 after the market closes. Last quarter, the company had delivered an earnings surprise of +6.38%. Let’s see how things are shaping up for this announcement.

Factors to Consider

We believe that the anti viral franchise at Gilead will continue to perform well in the final quarter of 2013 driven by treatments like Viread, Complera and Stribild. The strong performance of these products will drive the top line. The biggest positive at Gilead in the final quarter of 2013 was the U.S. approval of the potential blockbuster hepatitis C virus (HCV) treatment Sovaldi. However, the drug, approved in the U.S. in Dec 2013, will not be a meaningful contributor to the top line in the final quarter of 2013.

The bottom line will be affected by higher operating costs as Gilead continues to develop its pipeline, particularly idelalisib.  Gilead’s efforts to expand will also push up operating costs. Costs associated with the marketing of Sovaldi will also cause operating expenses to escalate. We expect Gilead to provide an update on its pipeline while releasing the earnings results.

Earnings Whispers?

Our proven model does not conclusively show that Gilead is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. Unfortunately this is not the case here as elaborated below.

Negative Zacks ESP: This is because the Most Accurate estimate stands at 42 cents, while the Zacks Consensus is higher at 49 cents. This results in a difference of -14.29%.

Zacks Rank #3 (Hold): Gilead’s Zacks Rank #3 (Hold), however, increases the predictive power of ESP. That said, we also need to have a positive ESP to be confident of an earnings surprise call.

We caution against stocks with Zacks Rank #4 and 5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Other Stocks to Consider

Here are some companies you may want to consider as our model shows that they have the right combination of elements, i.e., a positive Zacks Earnings ESP and a Zacks Rank #1, #2 or #3:

Actavis (ACT - Free Report) has an Earnings ESP of +0.66% and holds a Zacks Rank #1 (Strong Buy). Actavis will be reporting fourth quarter earnings on Feb 20.

Perrigo Company (PRGO - Free Report) has an Earnings ESP of +1.25% and holds a Zacks Rank #3. Perrigo will be reporting second quarter fiscal 2014 earnings on Feb 6.

Hospira Inc. has earnings ESP of +2.00% and holds a Zacks Rank #3. Hospira will report fourth quarter earnings on Feb 12.

In-Depth Zacks Research for the Tickers Above

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Gilead Sciences, Inc. (GILD) - free report >>

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ADVSR-VICE ETF (ACT) - free report >>

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